ASIC considering takeover regulation changes

ALAN KOHLER, PRESENTER: Here is an interview with the ASIC chairman Greg Medcraft, who I caught up with between kites.

Well Greg Medcraft, are you just thinking aloud on these takeover rules or are you actually making a proposal for legislative change?

GREG MEDCRAFT, CHAIRMAN, ASIC: Look, we’ve actually raised - we raised a few days ago the issue with Treasury on a number of the issues and we’ve actually written to Treasury now. We actually put it in writing last night.

These are matters where - we’ve raised with Treasury where we think they’re matters that should be reviewed that would require a change in law or clearly a modification of the law and that’s really then up to Treasury to determine whether it’s appropriate to recommend to government.

ALAN KOHLER: So can you tell us exactly what you’ve proposed?

GREG MEDCRAFT: We’ve actually suggested three areas we think there should be a focus on change. So, firstly, it’s in the area of law reform. And within there, we’ve identified three areas.

One, the creep provisions which, frankly, I think really are an anachronism. They don't really have a policy rationale in terms of somehow protecting investors. The issue about the creep provisions is that they basically allow you potentially to acquire a company without paying a takeover premium, and to that extent you could probably - you know, I think it’s pretty clear that it’s basically inconsistent with the takeover legislation.

ALAN KOHLER: Well do you know where they came up with that 3 per cent every six months from?

GREG MEDCRAFT: No, I don't, actually. I’ve been actually asking a number of law professors and the history of it seems to be quite shrouded, Alan.

ALAN KOHLER: What do you think it should be?

GREG MEDCRAFT: We’re just saying it should be reviewed. I think one of the possibilities we’ve suggested is that it certainly probably should be capped, maybe capped at 30 per cent and probably the increment should probably be adjusted down to 1 per cent. And that pretty well brings us into line with other jurisdictions.

ALAN KOHLER: You’re also looking for change to the ability to make a non-binding conditional offer and then pull out.

GREG MEDCRAFT: The first area is the creep.

The second area really is economic interest versus legal interests in terms of disclosure of holdings. That's clearly recognising that derivatives are a fact of life these days and really what is important is economic interests, not just the strict legal interest. And the third area, the one you’ve just mentioned, where proposals are made that are highly conditional, unambiguous and basically lacking in any detail and often have situations where they still get around the takeover law and because they are so vague, but they’re then potentially leaked to the market which actually creates unnecessary volatility.

The other area, as you mentioned in your article, if you want the bear hug, which is the offer via a scheme of arrangements, schemes of arrangement are currently excluded from the takeovers provision at the moment, and using a scheme of arrangement often as a way of actually putting pressure on a company is another area where we think there needs to be perhaps law reform.

In relation to those offers that are ambiguous etc, I think the answer there is potentially perhaps some form of the put up, shut up type provision.

ALAN KOHLER: What they do in the UK of course is that the announcement itself triggers the period of 28 days during which they have to put up or shut up.

GREG MEDCRAFT: Yes, it’s put up or shut up.

ALAN KOHLER: Yes, but the emphasis is on the announcement rather than the actual proposal.

GREG MEDCRAFT: That's correct.

ALAN KOHLER: Some people say that you’re raising all this to distract attention from your lack of performance in regulation. Is there any truth to that?

GREG MEDCRAFT: I don't think so. (Laughs). If you want to be a proactive, forward-looking regulator, I think it’s important to try and call things early where you see a potential issue.

I think in some of these areas that it’s important that we update the framework of laws that we have. It certainly is not about creating a diversion. There’s clearly been a lot of discussion in the media about some of these issues, and, you know, I just felt that we shouldn't be silent. I think it was important to actually express our view.

ALAN KOHLER: There is some confusion about continuous disclosure - what exactly should be disclosed and whatnot. For example, do you think David Jones should have disclosed the approach that they’d had?

GREG MEDCRAFT: I won't comment on specifics.

I think what certainly, as I said, needs to happen is everyone accepts the continuous disclosure guidance needs to be updated and that is being done by ASX at the moment.

I think it needs to be clearer perhaps when it’s a matter of disclosure or whether it’s a matter of a trading halt may be an appropriate response. But again, backed companies, it’s always - the benefit of hindsight’s a wonderful thing, right?